Rewind: Transform Public Accounting with Ron Baker

Ron Baker is the founder of VeraSage Institute, the leading think tank dedicated to educating professionals internationally. His mission is “To, once and for all, bury the billable hour and timesheet in the professions”. He also hosts the radio talk-show The Soul of Enterprise: Business in the Knowledge Economy on www.VoiceAmerica.com.

Ron has toured the world, spreading his message on pricing models to over 250,000 professionals. He has been named on Accounting Today’s 2001 to 2007, and 2011 to 2022, Top 100 Most Influential People in the profession; voted among the Top Ten Most Influential People in the profession in 2012—2022; selected as one of LinkedIn’s Influencers; inducted into the CPA Practice Advisor Hall of Fame in 2018; and received the 2003 Award for Instructor Excellence from the California CPA Education Foundation.

Ron’s latest book of eight total, Time’s Up: The Subscription Business Model for Professional Firms, was released in December of 2022.

Transcript:

Season’s Greetings from CPA Life! Today, we look back on John Randolph’s conversation with legend of the profession, Ron Baker of VeraSage. With topics ranging from value pricing, to client advisory services, to the moral injury many accountants face in their current jobs, this is an end of year episode you don’t want to miss. Welcome to CPA Life Rewind.

Hey everyone. Welcome to another episode of the CPA Life Podcast, the show that focuses a spotlight on some of today’s key voices in the public accounting industry, folks that are laser focused on building a more modern minded future focused firm. And today we are going to spend some time digging into a couple of those areas that seem to be hot buttons for firm owners and leaders, topics of value pricing, subscription based pricing, and the wonderful CAS, or client advisory services, with a long time influencer and a guy that knows quite a bit about those topics: Mr. Ron Baker. Ron, thanks for joining us.

No, thanks for having me, John. Looking forward to it.

You know, stereotypically, Ron, we spend the first few minutes of our show talking with guests about how they got to this point in their career journey. And you had a fairly traditional start coming out of college and working for a Big Four firm that was, was it Big Eight at that time?

Big Eight. Yeah. That’s how you carbon date a CPA, did they say Big Four, Six, Five, Eight? So you can put me in the right era. I’m a Big Eight guy. In fact, I’m Peat Marwick Mitchell. It’s even worse.

I was going to ask you, which firm did you work for? Cause I know that it was KPMG, but I was going to ask you what the legacy firm was.

I left right before they merged with Main Hurdman, which is where I guess they got the G in there or something or the, yeah, anyway.

Something in there. So walk us through the history and a little information about the two roles that you’ve had the last couple of decades as the owner and founder of VeraSage and the radio host of Voice of America Radio.

Real quick, I actually knew I wanted to become a CPA when I was in high school and had a really good accounting teacher. He was fantastic. He had a two year program, not a one year, but a two year. He also taught us taxes. So we ran, I ran a tax clinic in the school. Kids would come in with their W-2s, I’d fill out their return, they’d slip me a twenty, you know, because they’re getting a refund and they were all excited. I interned for a CPA when I was in high school. I was his TA in the third year. And he just inspired me. He’d bring in CPAs to the class to talk from industry, we had an FBI guy come in and he had a major impact on me.

And I ran my own accounting firm in high school. My dad was a barber. I did his books. I did a bunch of his friends’ books. I defended them in front of the IRS, actually went in with a signed power of attorney. I’m not even 18 years old. They let me do it. And so I was billing time. I was filling out a timesheet as a, you know, as a high school kid, because that’s what all the CPAs taught me. I joined the Big Eight after I graduated. And when I left the Big Eight after two and a half years, I started my own practice and that’s when I learned really, really fast that the billable hour was kind of a crappy customer experience. I got tired of people coming in or calling me, why didn’t you tell me it costs so much?

And the only answer I had, John, was, I spent the time, look at my time sheet. I spent the time. And the customers don’t care about the time, right? And they care about the result, the end product. I just walked into my partner one day. I said, you know, and this was 1989, by the way, I said, Justin, we got to go to fixed prices. “We can’t do that. We don’t know how long something’s going to take.” I said, no, don’t give me that. I said, mechanics do it. Everybody gives us a fixed price. We can do the same thing. And we just started doing it.

Because I was studying companies that back then were called TQS leaders, which was total quality service. Now we would call it customer experience. And it was companies like Nordstrom and Disney and Lexus and FedEx, all these companies that I truly admired. And I said, I want to be like them. And we did it. The customers love the certainty. We made every mistake under the sun. We didn’t do a lot of things that I’ve learned since and teach, you know, about offering three options about having a value guarantee, all these different economic and marketing things. We didn’t do any of that when we first started, but the customers loved it. So we stuck with it. And it also allowed us, well, guess what? If you’re not selling time, no need to measure it. So we got rid of timesheets. This is all in 1989. There’s nobody on the circuit talking about it. There’s no books about it, at least not in the professional space.

And we stuck with it because the customers loved it. The feedback we got from the customers was amazing. And we just kept getting better and better and better. It allowed us to raise our prices. It allowed us to get rid of a lot of low value customers. And then I got so excited, I started teaching it to the Cal CPA society foundation. And then in ’98, I wrote a book. That book was kind of picked up by Paul Dunn and Rick Payne out of Australia, waved around the world on various stages, it sold 40,000 copies, which was kind of interesting. It was a $150 book and that’s what got me out of my practice and into starting VeraSage, and consulting, and writing and speaking, which is what I do still today.

So was that kind of the impetus that you kind of said, hey, this is something that needs to be said as loud as possible to as many people that will listen?

Yep, and I screamed it. I was very cantankerous when I started doing this because the arguments I had with people were amazing and I just wouldn’t back down. I love to debate and I love to go after people and I love to try and change their thinking. I’ve since mellowed in my old age, but yeah, I really hit the scene with a bold vision that we shouldn’t be doing this as a profession. We’re professionals for crying out loud. That means we stand for things. We profess things, and I don’t want to be known as the guy who did his timesheet on time. That’s not how I’m measured. It’s not predictive of the success of a CPA. It has nothing to do with what I do or how I add value. It’s not a good measuring rod. It’s like plunging a ruler into the oven to determine its temperature. It’s just the wrong measuring stick.

You know, it’s interesting that you use the analogy a minute ago, or you referenced, you know, hey, mechanics do this. And I hadn’t thought about that, Ron. And the reason why that hits home with me is because my dad was a mechanic and I remember explicitly having a conversation with my dad in high school, because I’d go—working with my dad during summers in South Texas was one of the reasons why I decided, I don’t know what I want to do for a living, but I know what I don’t want to do. I don’t want to work in South Texas in the summer outside under a car.

So I got to go to college and do something different, but I remember one day talking to my dad about, hey, how do you know how much to charge somebody for an oil change or rebuilding their transmission? And he took me into his office. And he took out, I want to say it was, it was from a company called Chilton. Chilton’s Automotive.

Chilton. That’s right.

And he shows me this book where you flip through and it says, here’s the make and model of the car. We need to rebuild the transmission. Here’s how long it’s going to take you, ballpark. This is probably what you should charge. He’s like, so it gives me an idea that it’s probably going to take me X amount of hours to do this. So I’m going to charge X amount. And I asked him, well, what if it takes you less than that? That’s what I charge. What if it takes you longer? That’s what I charge. I better figure out how to do it in a shorter period of time. I hadn’t thought about that until you just said that, but there’s a lot of common sense surrounding that.

Even though they still have an hourly rate, a shop rate, but the thing is, like he said, if he can get it done in half the time that Chilton says it should take, they’re still going to charge that same amount. And we learned the same thing really fast. We put a fixed price on something and it might take us half of what we expected, because we found a better way to do it. Or we automated something or came up with a, you know, macro on a spreadsheet or whatever. And we didn’t pass that along to the customer because we got the job done quicker, they were even more satisfied. I often joked back in the day that if CPAs owned the Concord, it would be cheaper. Which makes no sense, because it only takes half the time to fly to London, so we can only charge half the billable hours. I mean it’s crazy! the slowest horse wins the race in the billable hour, it just misaligns the incentive. We want to spend as much time as possible and the customer wants their work done as quickly as possible.

I’ve contended for a handful of years now when I have this conversation with people, I’ve never asked my CPA how long did it take you to do my tax return. Never.

Or how long did it take Honda to build your car or whatever. I mean, it’s a crazy paradigm and it goes back to the labor theory of value, which you’re reading about in The Firm of the Future. And all my books talk about that. I mean, it’s a very old, old discredited economic theory.

So one of the things that we’ll constantly hear from clients when they’re still in an hourly billable model, or even a model that maybe they’re doing some subscription based pricing or value based pricing, but that timesheet is still in the picture.

Right.

So, in some way, shape, form, or fashion, that timesheet is either the barometer of what we bill by, or it’s a piece of our business. One of the things we hear from them is, we’ve got to be able to measure. If we don’t have that, we can’t measure, we can’t measure productivity, we can’t measure profitability, we can’t measure, you know, we can’t measure. What do you say to that firm leader to that firm owner that makes that argument?

Well, there obviously, we can measure without the time sheet. We do it anyway. We have an income statement. We have cash flow we can look at. We can do capacity planning. We can do proper project management by forecasting time into the future, like real project managers do. Project managers don’t lay awake wondering why they spent, you know, a hundred hours over budget. They lay awake trying to figure out am I going to get my stuff done by the deadline that we promised the customer? This is why FedEx measures on time delivery, right? What you care about from your UPS driver today is they drop your wine shipment by the time that they specified. I mean, Domino’s Pizza does this, right? It shows you a pizza tracker. We’re going to get there in a half hour or whatever.

We can measure all sorts of things that aren’t time related. We should be measuring things that the customer cares about. How does the customer define the success of their CPA? Do they keep their promises? Do they call me back? Or respond to my emails in a timely manner? All of these things are much better things to measure than what somebody lies on a timesheet.

Yep. And ultimately, that really is what’s happening is, you know, somebody is spreading out that time On a timesheet somewhere in the firm.

Absolutely. Borrowing from other jobs or fudging or whatever. I mean, they’re a pack of lies, they’re not accurate, but even besides all those arguments, they’re not the right thing to measure, because somebody can create a million dollars in value with a brilliant idea. What do I put on my time sheet? You know, do I count the time I took a shower this morning and all, I mean, it just gets ludicrous because it’s the wrong measuring stick for value, especially in the knowledge environment.

Absolutely. You know, one of the things I’ve heard you talk about a few times in the subscription pricing mindset is the medical world shift from the concierge and primary care pricing model. Talk a little bit about that because I think it’s a great comparison.

Yeah, I do too. This was the North Star for the book Time’s Up. My North Star for where a CPA should be is what the concierge doctors are doing, what the direct primary care doctors are doing. Now, they’re peas in a pod in the sense that they tend both to be general physicians. The difference between a concierge doc is just, it’s the price point. One’s Ritz Carlton and the other is a Marriott Courtyard. The DPC docs are the, you know, they’re going after the middle class and the lower middle classes. They’re usually between $1-300 a month. So let’s just focus on the DPC docs.

The DPC doc is a GP who, the average GP in the United States has a panel of patients of about 2,400. That’s why you get to spend five minutes with your doctor, because he has to see, or she has to see 50 or 60 patients a day. And they’re one, you know, from one room to the other. And they only get paid because they take insurance, whether it’s Medicare or private insurance, they only get paid when they do something to you. They’re in a fee for service treadmill. They don’t get paid for consultations. They don’t get paid for FaceTiming or texting you or emailing you. That’s why they always tell you to come in, because they’re only going to get paid when there’s a consultation, even after COVID, before COVID, didn’t matter. So they have 2,400 patients.

Now, a DPC doc will limit themselves to somewhere between 500 and 600. So they’re running at 25 percent capacity.

Wow.

But you can spend the average appointment time with a DPC doctor is over an hour. And their whole mindset is yes, they’re gonna cure you when you come in with a presenting problem. They’ll fix it. Their real goal is to keep you healthy.

Which is a complete opposite mindset from the traditional medical world.

Totally. Absolutely.

We can probably run down this rabbit trail for a while. But I remember listening to an audio book my wife and I were listening to on a drive, and it was a doctor that left the profession and is now focused more on holistic medicine. And his comment was, I left the profession because the profession has one goal in mind. Keep you alive as long as possible, period. It’s not about prevention. It’s not about getting you well. Unless you have a direct, his words, a direct primary care physician, who is going to spend his time helping you not just get better, but stay better.

Right. Yeah. And that’s exactly where we need to go. You know, my favorite definition of what it means to be a professional comes from Michael Hammer. And he said a professional is someone who is responsible for achieving a result rather than performing a task. If we want a task done, I’ll hire a day laborer, you know, clean my gutters, walk my dog. But if I go to a professional, an eye doctor, a doctor, a CPA, a lawyer, I’m looking to achieve a result. And that professional is responsible for achieving that result, not performing the task. And my argument against the billable hour is it atomizes everything into a six minute task. And then we think, well, we did these 22 tasks, so we’re done with this job or we’re done with this client. It’s like, no, what about the result?

You know, you can do all the tasks on the checklist or whatever, but you may not achieve the result that the client was seeking. You probably didn’t even know the client had a result in mind unless you had a conversation with them. And so I actually think the billable hour is unprofessional, because it takes our eye off the result and the result is either to be healthier, wealthier, or wiser. And that’s why the professions that do that, that make people healthier, wealthier, and wiser are so well poised to do the subscription model and do what the DPC docs are doing.

You know, it’s amazing to me how many younger people, regardless of industry, get that. As I mentioned, we just recently moved into a new house. I talked to a concrete guy the other day about pouring a slab for a metal building I need to build. Young kid, 24 years old, he’s the only guy that I talked to that did not say something to the effect, well, it’s going to take me X amount of hours, so my hourly rate is X and my products cost is Y, so it’s going to cost you about, A to B for me to build this.

This kid came in, looked at it. First of all, he’s also the only one that came to my house to look at it. Everybody else did it over the phone or an email. This kid comes up, 24 years old, looks around, takes a couple of measurements, figures on his phone, a couple of things, looks at me and says $8,000. And I said, okay, how did you come up with that? Well, I looked at it and I figured it’s going to take us about this long to get it done. But I mean, I can give you an hourly rate or you can just know that whether it takes me one day or five days, it’s going to be $8,000. Okay!

Right. And see, this is the great distinction that project management makes between estimated effort versus duration. What the customer cares about is the duration. When can I walk into it? When can I start using it?

Yes!

And that’s what project managers are worried about. If all you’re doing is looking at a timesheet to figure out your workflow, it’s like timing your cookies with your smoke alarm. I mean, by the time you see something on the timesheet, it’s by definition, no longer manageable. It’s a sunk cost at that point. And that’s not what the customer cares about. They care about when can I use the building? When’s it go live, you know? And we don’t measure that. We measure the effort, not the duration. It’s crazy.

That’s a great distinction because, you know, again, in this scenario with the concrete guy, my biggest concern is I need to know when you’re gonna be done because I need to schedule some guys that are gonna build a metal building workshop for me. So all I really care about, I don’t care if it takes you two days or five days or two hours to get it done. When will it be done? And when can I get these guys standing on the concrete building this? Like you said, that’s what matters to me—the end result.

Right. And John, it’s funny because, you know, I’ve hired guys too, to do stuff around my house, and the other thing that I find amazing about the home improvement or whatever business, handyman, you know, contractor, none of them give you options. If that guy would have given you three different options for three different types of building, we can have this material or we could do it this way and this might last longer or be more weatherproof or more soundproof, you know, whatever it is you’re looking for. I mean, if they, if you would have given you options, my guess is you wouldn’t have bought the cheapest.

Mmm hmm. You’re absolutely right.

And none of them do that because they’re so T&M driven.

When you look at the space that we’re in now in 2024, I’ve got to believe that there’s a few more smiles on your faces, coming away from conversations or lectures or discussions or training, coaching type events that you’re a part of because there’s more people that are getting it. When you think about those people that are getting it, do you see some common themes between firms, organizations, size, mindset? Is there anything that you look at and see a string of commonality?

Right. It’s a great question. And I think about this a lot. There are certain characteristics of firms—or it’s really not firms, it’s the people in the firm. We don’t convert firms, we convert minds inside of firms. And sometimes you can’t convert a firm, but you can convert a mind in a firm, and if that person leaves the firm, then they go out and start their own firm and do it the right way. So I’ve always counted conversion of minds, not firms. The pattern of people that get value pricing, first, they have an abundance mentality. They don’t view the world as zero sum. You know, some have to lose for others to win. They don’t have that mentality. They know they’re professionals. They know they bring tremendous value. And so that’s a common characteristic. It’s not age related. I have learned some of the biggest movers of this were older. And the whole thing about, you know, you can’t teach an old dog a new trick. You can.

Now, maybe an old dog is not going to invent a new trick—innovation tends to be a very young person’s game below 40 on average. And we could spend a lot of time on that, and that really pisses people off when I say that, but it’s so true, that if you look at all the Nobel Prizes, if you look at the average age of the Manhattan Project scientists—25. Look at the average age of the founders of this country, you know, all below 30, except Ben Franklin. He’s an outlier. I’ll give him that. Franklin did amazing things into his 80s and invented all sorts of new things. But he’s almost like the exception that proves the rule, right? Because he’s so unusual. And so that’s another thing.

The other thing is they realize that there’s a better way to run a practice than billing time and filling out timesheets. And a lot of them just did it because they were fed up or they had a medical crisis that they had to change. They had to work smarter, not harder because their doctor told them that. Otherwise, you’re, you know, you’re not going to be here type of thing. I wish I could point to various things, but it’s just mentality. It’s always been a mindset issue. There’s a great video on this by the way. And you might want to dump this in the show notes called The Backwards Bicycle, if you just Google, this video will come up. It’s about seven minutes and it is the definite perfect explanation of how hard it is to rewire your mind from hourly to a value pricing mindset, and it does a great job explaining how our brains work.

Interesting. You know, you talk about how that person that gets a new idea leaves and starts their own firm. We’ve got a client here in the Dallas area that we work with that left a Big Four firm with the intent of a lot of long nights, single guy at the time, a lot of time at 11 o’clock, midnight at the bar, having a beer with buddies, all kind of saying the same thing. There’s got to be a better way. He left to start his better way, and what was funny is he said he kind of woke up two to three years into starting his own firm, and realized all he had done was build a smaller firm that looked like what he left. All the ideas he had got put on a back burner because “I gotta make money, and so I just started doing it the way I knew how to do it, and we’re working with clients that are a pain in the butt, we’re billing by the hour. I’m killing myself, my staff is overworked. We’re over capacity.” All of the things that are traditional within a firm.

And kudos to him, he recognized that, drew a line in the sand, and sat down with his team and said, okay, here’s what we’re going to do going into next year, which was going into ’23, coming out of ’22. No more orphan tax clients. We’ve got a client that all we do is their tax return period, the end, a simple 1040, whatever it is, they’re gone. ’23 is the last year we’re touching them. We’re not going to do it. Everybody’s moving to subscription based pricing. If we do your taxes, we do your bookkeeping. If we don’t do your bookkeeping, we don’t do your taxes. So we’re going to touch your books at least quarterly, ideally monthly. Over the course of ’23, they got rid of about 38% of their client base, hired I think three people, grew revenue by 65%.

I wrote the same chapter. I mean, psychologists call it path dependent. You know what you are in the past, you’ll be in the future. And I came out of the Big Eight. And what did I do when I started my firm? I billed by the hour. What did my partner agree with? Well, he was from AA. So he, yeah, we got to keep a timesheet. We billed by the hour. And it’s crazy. And I recognized it really fast that this isn’t the way to success.

The other thing that needs to be said: I’m getting tired of hearing the fact that CPAs are burnt out—we’re suffering from burnout, depression, alcoholism, divorce, suicide, all of these things. You hear this in the medical field too, and this is where I learned all this, by the way. It’s not burnout, John. CPAs, type A personalities, they went to school, they worked really hard, top of their class, you know, academic achievement, all of that. It’s not burnout. I think it’s moral injury. We’re not living our purpose. When a doctor takes the oath, the Hippocratic Oath, there is something in one version of it from John Hopkins that says, if I shall fail to live by this oath, may my own health be taken away from me. In other words, if I betray these words—and there’s a great book out there called If I Betray These Words that talks about we’re misdiagnosing. It’s not burnout, it’s moral injury. We’re not doing what we’re designed to do.

If you ask any CPA around the world, why’d you become a CPA? They’ll say to help people. And are you living that purpose? No, because I’m filling out a timesheet in six minute increments. And all I’m judged on is how many hours I bill and what tasks I accomplish and whether I do it on time or not. My impact on my customers is not being measured at all or even looked at or considered. That’s moral injury. It has nothing to do with burnout.

If I were to go through your new house and change all your light bulbs, screw in new individual light bulbs, and 50 percent of them popped out, you know, blew up, I probably couldn’t blame the light bulb. I blame the electrical system. And the electrical system in our case is our business model that we sell time or fee for service. And it’s dispiriting. It’s moral injury. That’s what we’re suffering from, not burnout.

As a firm we track a lot of stuff. Individually I track probably more than we do as a firm because I just, and we talked a little bit about this a minute ago, the ability to go back and look at the tape so to speak, I think is critical. So one of the things that we did about two or three years ago was we just started tracking, because again, the only space that we play in on the recruiting side of our business is public accounting. So all day long, we’re speaking to public accounting people. That’s all we do.

So we started tracking, I asked my team, for three months, we’re going to track this: where in the conversation does “I hate what I do, get me out of public accounting,” come into the conversation? Where does it come in, and how often does it come in? 83 percent of the time, that’s the conversation within the first 10 minutes. Now we don’t tell people, hey, this is all we do. But through the course of conversation, it’ll come out either, hey, if I make a move, I’m not staying in public accounting, or I’m looking to make a move, get me out of public accounting. And the conversation at that point we start to have is tell me why. Tell me what you don’t like. Tell me what drives you up a wall. Tell me what pulls your hair out, that makes you dread going into work right now. “Tracking time, timesheets, work life balance. Everything is focused on getting the work out the door. Bill bill bill.”

That’s the frustration. And usually we’re speaking to people that have anywhere from one to 20 years in the industry. And we’ll flip the question a little bit after talking about the pain and say, okay you’ve been there for two years, four years, eight years, whatever it may be you’ve been in the industry. What’s kept you there? Obviously you don’t hate everything. Tell me why you stay. And it gets back to what you just said: “I love helping people. I love the fact that there’s variety in the work. I love the fact that Tuesday doesn’t look like Monday and this Tuesday will not look like next Tuesday. I love the fact that I can make an impact on somebody’s life if I’m working with a small business that’s having some challenges or problems.” All of those things. And what we try to get them to realize is, look, what you’re telling me is You don’t hate what you do. You hate where you do it.

Where you do it. It’s the electrical system.

Yeah, and we’ll ask them, if we can find a place for you that lets you plug in and takes away 80, 90, 95 percent of the things that just drive you up a wall, but replaces those things with the things that just give you fuel for your fire, would you at least be open to hearing about opportunity? We’re not asking you to interview. We’re not even asking you to take a job. Just, would you listen? Would you at least listen? And of that 83%, half of those people say, I’ll listen, because I love what I do. I just, you’re right. I don’t like where I do it.

It’s amazing. Yeah. This is why we joined the profession, worked so hard to become a CPA, and then we get in there and it’s not like it was sold, and we’re not living our purpose and that’s moral injury. I highly recommend the book by, it’s Dr. Wendy Dean, If I Betray These Words. It really, I wasn’t, I heard her on a podcast, but I actually talked about burnout with a DPC doc, and I was giving them statistics from some study and he, we had him on the show and he said, Ron, he said, I really doubt those studies. He said they’re flawed, they’re deeply flawed. And that stuck a bug in my ear. Wait a minute, I’m looking at this with the wrong lens. And then I landed on this moral injury. And I think it’s a much better diagnosis.

I think you’re probably onto something there because again, the conversations, the unscientific conversations we have every single day, they bear that out. They bear it out.

Me too.

They absolutely bear it out, which I think brings us to a great point to segue to another part of the conversation I want to get your thoughts on because I think it’s something that again you’ve touched on a lot, and that’s the whole CAS, client accounting, client advisory services and I want to make the distinction that those are two very different things.

Yes.

And I think that the firms that are getting it right are embracing—yes there may be accounting in that, bookkeeping—but I think what I’ve seen from our perspective, the firms that are getting it right are truly embracing an advisory mindset which then feeds the fuel of excitement for the people that they have working for them, and they’re no longer just focused on the transaction, but they’re focused on the solution. They’re focused on not just reporting or talking about what’s happened in the past, but let’s look at how we’re going to get there in the future. So talk to me about the entire client advisory, client accounting world, what you’re seeing, is it something that still has a long way to go or have we made more headway there recently than in the past?

Yeah, the shift to advisory has been talked about for a long time. Paul Dunn, Rick Payne came out of Australia, they used to do the boot camp. That was a big thing in the late 80s and the 90s, and this coincided with AICPA Vision Project, if you remember that. So as a profession, we’ve been talking about this for 30 some odd years. This is not a new topic. CAS is not a new thing for crying out loud. It’s a very old thing. And I don’t think we’ve done a good job, because to be an advisor, to be a consultant, versus say, being an accountant, there’s a difference. As an accountant, you’re an expert. If I ask you a tax question, an audit question, a gap question, you’re going to give me an answer. And that’s part of your self identity, your self esteem. “Hey, I know this obscure code section” or whatever. But a consultant is not paid to provide answers. A consultant is paid to ask a more beautiful question.

If you think about McKinsey, they have a bunch of snot nose MBAs. They don’t know crap about the business world. They go into these businesses that have been around for decades or generations, and families, but what McKinsey does have are more beautiful questions. And you’ve got to ask a question, but to ask a question makes you look ignorant, not a good image for an “expert.” So I think that’s the biggest mindset shift that we have to overcome is we don’t have to have all the answers when we go into consulting, we just have to have more beautiful questions. The customers know the answers. If you ask a beautiful question, it’s great, because it leads to new thinking, new ideas, new creativity, all of that, but we’re caught up in the expertise mode. That’s one thing.

The other thing I’d say about the CAS thing is, I have a very provocative definition of a business model, and that is, in essence, a business model explains where revenue will be earned when services are provided for free. Now, John, stick with me. If you gave away the tax, if you gave away the CAS, gave it away, the services, all the things on your to do list, paying bills, AP, AR, payroll, it’s all free. What would we charge for? What would we monetize?

That’s a great question.

Well, my answer is transformations. We are poised to guide our customers from where they are, to some desired future state, to where they want to be. From/to. From smoker to nonsmoker, from overweight to fit, from cash flow worries to a year in the bank cushion or whatever. And we do these transformations every day as CPAs—we already do this, we just don’t use the language. We help our customers retire sooner, we help them grow their business, make it more valuable so they can sell it at a higher price. We help their kids get into college—at least financially, maybe not academically. We help them plan their legacy for after they’re gone. How much is Warren Buffett, Bill Gates and Mark Zuckerberg, how much time and money do they spend on their legacies, foundations, estate planning, multi-generational planning? When you guide a transformation, you’re touching the customer’s soul, and the services become a means to an end.

Our value is not in our services. It’s not in our scope of work. We have to get away from that. Scope of work is meaningless. The services are meaningless. What matters is guiding those transformations. And we can do it over and over. We can do serial transformations from womb to tomb. We’re one of the few professions that can help people become healthier, wealthier, and wiser to borrow from Ben Franklin. And yet we don’t message like this. We don’t market like this. We don’t talk like this. And if we did, I claim we’d have three or four or five times the pricing power that we have, by being on a fee for service like the doctors are: I’m only getting paid when I sell a pair of hands.

That’s way too limiting as a professional. When we don the mantle of a CPA, we’re so much more valuable than our scope of work. So much more valuable. It’s not about the fee for service. It’s not about the transaction. It’s about the relationship. With a subscription model, you’re building lifetime annuities that are more valuable than the cost to acquire them. So it changes the focus from the math of the moment, the rate per hour, the profit per job, profit per customer, all that out the window, and now your big metric is customer lifetime value. And firms that are subscription are selling between five and 14 times revenue compared to one times revenue, if you’re in an hourly mode, or maybe two or three times, if you’re a value pricing firm, because recurring revenue is far more valuable to the market than re-occurring revenue, which has got one and dones, and like a rash, re-occurring revenue, you never know when it’s going to come back, but recurring revenue on a subscription model, that’s incredibly valuable.

I think that what you’re saying has a lot of legs to it, but I think the challenge is, what we get back to, is the mindset. And the reason why I say that, Ron, is we were talking a little bit about how we rolled out last year, an advisory piece of our business called Talent + Advisory. And our focus with that is, yeah, we’re going to roll in some of your talent acquisition needs. You need to hire three, four, five people. Yes, we’re going to roll that in. But at the end of the day, all we’re doing at that point is we are reactively taking care of the problem when it arises.

Right.

We’re sitting back and we’re waiting for you to get the flu. And the minute you say you get the flu, we’re going to jump in and we’re going to help you get better from the flu. Our desire with this model has been to partner with clients and look, let’s figure out—now if you’re Deloitte and you’ve got all this internally in your organization, or EY or Grant Thornton or Baker Tilly, great. But if you’re a 22 person firm, if you’re a 18 person firm, you don’t have the resources to do that. So let’s sit down and let’s figure out, one, how do we sell you better in the marketplace? Number two, how do we keep your people longer? How do we engage with them better? How do we brand who you are internally and externally so that it resonates better? How do we tell your story internally and externally? Because the goal through this is to stop the back door from spinning so that the front door doesn’t have to come open so much, and we keep people in there engaged with who you are.

Now, when we talk to clients about that, man, they get it. They get it. But then we start working with them, and the first thing they want to know is, okay, so when can we start interviewing candidates? If we don’t have an opening, or if we’re not projecting something or a need, until middle of Q2, we’re going to build a pipeline. Let’s focus on other stuff. Let’s talk about how we get you to the desired state of not having to deal with the capacity issues you’re having to deal with, let’s get you to the desired state of people not leaving your organization. Voluntary turnover is one thing. Involuntary turnover is another, let’s reduce that voluntary turnover. If we can get it to zero, let’s get it to zero. But the mindset constantly goes back to the transaction.

Right? It’s a very difficult thing to overcome. I mean, we are so used to the only way we get paid is when we do something to or for the customer, and we’ve got to change that mindset. I think the other issue with this is, I see a lot of marketing messages and I’m sure you do too, John, about the problem: CPA firms love to say, “We solve your problems. We’re your solution to problems.” And that’s great. We’re great problem solvers. We can get the IRS off your back, blah, blah, blah. But if all we’re doing for our customers is solving their problems, we’re just reverting them back to the status quo. We’re not advancing them. I want to advance them, I want to transform them, because when you transform a customer, when you guide, when you get them to that capacity where they have spare capacity, they’re not running around with their hair on fire, they have time to take the good customer that comes in and needs that last minute airplane seat, right? The last thing I want to hear from my dentist if I have a toothache, is “Oh, we can fit you in three weeks.” No, not good. You better have capacity the day for emergencies. You always have to have spare capacity. And boy, if we could get there, if we could guide transformations, then the services become a means to an end. The customer’s the product.

I like that.

The customer’s our product.

And I think there’s a lot of truth to that. You talk about building in that spare capacity. There’s a firm that we’ve had on the podcast by the name of Audit Club and they’ve rolled out a—

Oh yeah. Vanover. Chris.

Yeah. Chris Vanover. And I like, when Chris and I were talking about their business model, how they’re basically a four day a week business model. And I asked him, I said, what if there is that person that absolutely needs you on Friday? And he said, we’re available on Friday. It’s going to cost, but we’re available. And if you want to pre-purchase that, meaning you don’t just want a seat on the plane, you want first class, or you want the option to even upgrade to business class if you want to, there’s a cost to it that is a part of your package. And I think that there’s a lot of sound reasoning behind that because now you start getting into saving time, not stressing, having that insurance policy. And I’ve said for a long time that I think people will pay top dollar to save time and be able to get the attention they need when they want it and when they need it.

Absolutely, couldn’t agree more. And that’s the other thing the subscription model inspired by the DPC docs do. To the extent that we are going to measure time in this profession, we should measure the time we save the customer. That means no more giving them 400 page tax organizers—this is customer abuse. This is absolute customer abuse. We should know everything already in that—plus, by the way, if they could fill that thing out, they wouldn’t need us. So we need to save the customer’s time, and then we need to measure the time they spend with us. Is it time well spent for them when we have a meeting, when we have a phone call? And then if you really want to take it to the next level, time well invested.

And that’s where you get into transformation. Because now there’s an ROI for them from the time they spend with us, because we’re going to guide this transformation, and we can do these transformations over and over. There’s always something to work on in their personal life or their business life, right? And we can limit to one transformation per whatever. You can put caps around, you can build fences around it. But the bottom line is we should be guiding transformations. We shouldn’t be pissing around with scope of work and how many transactions, and every time you add an employee, you have to go to the Department of Paperwork and get a change order. This all needs to go away. It needs to be a frictionless, convenient, time saving—just like Amazon Prime, because I’ll tell you, that’s who we’re being compared with. Your digital experience in your firm, customers comparing it to what? Prime.

The ease of getting what you want when you want it.

Yep. Same day.

Yep. Absolutely. Ron, I’ve been a niche proponent for years in our business and other professional services industry.

Me too.

I’ve been a part of 32 different startups and turnarounds, and I’ve told people for years that the consistent theme for failure in any one of the turnarounds that I stepped into to fix, the consistent theme was trying to be everything to everybody. And for those startups that we had skyrocket, or turnarounds that ended up being great successes, the common theme was we niched. We put a stake in the ground and said, this is who we are, this is what we do, and we do it as good or better than anybody else does it. And it’s amazing when you do that, you don’t have to be the biggest. Your voice even doesn’t have to be the loudest, but since it’s screaming in a room where there’s not a whole lot of other people talking, your voice tends to be one of the loudest in the room.

Yep. So true. My favorite example is if you look at HP, last time I looked, I think they have about 15,000 SKUs, Hewlett Packard. When you look at Apple, they’re fewer than 75.

Wow.

That says it all. Apple’s incredibly focused. It takes the same amount to power an incandescent light bulb as it does a laser, but a laser can bore a hole through metal because of its intense focus. And we’re just not focused enough as we try and be all things to all people, because we like the variety. In fact, when you get into public accounting, that’s what you say. I like the variety. I like working with a manufacturer and then a doctor. And that’s a great for your intellectual curiosity, it sucks for your business model.

Yep. It’s going to constantly keep you jumping. We’ve got a client that is laser focused in the landscape industry. That’s all they work with. They work with landscape firms and commercial landscape firms. They don’t even work with residential landscape firms. Commercial landscape firms. And we placed a guy with them that runs their client accounting services group. Not their advisory group, but their client accounting services group. And one of the first things he did, again, to me, it’s just logical. He said, John, I got in here and we had somewhere in the neighborhood of 116 different clients that we’re doing monthly, quarterly books for, and we’ve got 11 different accounting softwares that they’re running on.

That’s crazy.

Made it very clear within the first 90 days, everybody’s converting to QuickBooks Online. And if you don’t want to convert to QuickBooks Online, then sorry, we can’t support you.

We’ll help you find another firm.

Exactly. He said John, I need my people to be able to finish with Joe’s Landscape Company, log out of that system, log back into a system, and not have to turn their Xero brain off and turn their QuickBooks brain on. Just stay in that lane.

Could you imagine walking into Starbucks with your own coffee machine? Oh, I want you to use this one to make my latte. Not gonna happen, sorry.

No. Absolutely not gonna happen. It’s one of those things that, again, blinding flash of the obvious that sometimes it takes an outsider to take a look in and go this is not working.

For sure.

Ron, I can’t thank you enough for carving out some time to talk about these topics. And there’s so many other things that I may reach out to you and see if we can set up some time to talk about some other stuff, because, there’s a lot of things that we touched on, a lot more topics that I’d like to touch on: Your thoughts on private equity that’s coming into the industry, what you think about that; where is this whole movement going in the mergers and acquisitions that are occurring in the industry; about the employee shortage. All of those things that everybody is trying to figure out what are the answers to. And I think that some of the things that you’ve touched on have a piece of an answer to a lot of those problems. If people want to learn more about what you’re speaking on, writing about, they can obviously find you on LinkedIn or on your podcast, but give us a little bit more information on those different watering holes where you hang out.

You can find me, I’m on Twitter @RonaldBaker. I’m one of the influencers on LinkedIn, so I do posts up there. There’s a lot of content up there. You can email me at RonVerasage.com. Happy to talk to my colleagues anytime. You can also find me at TheSoulofEnterprise.com, which is the radio show I do with Ed Kless that comes out weekly, every Friday. It does drop the podcast, although it is a live radio show on VoiceAmerica, not Voice of America, VoiceAmerica, and that’s probably the best place to find me.

Okay, and Verisage is V-E-R…

A-S-A-G-E. It’s a combination of veracity and sagacity. That’s a portmanteau of those.

Okay, we’ll make sure and get all those links in the show notes. And for those of you listening, if you enjoyed what you heard today, hit that subscribe button to ensure you won’t miss any future episodes where we spend more time talking about CPA Life. Until next time.

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Rewind: Transform Public Accounting with Ron Baker

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